Mitsubishi’s Stock Surges on $3.4 Billion Buyback Endorsed by Warren Buffett.
Mitsubishi witnessed an unprecedented surge in its shares on Wednesday, reaching an all-time high, after revealing a substantial buyback plan of $3.4 billion, supported by Warren Buffett.
In a report by the Financial Times, the Japanese conglomerate announced its proposal to repurchase up to ¥500 billion ($3.4 billion) in stocks on Tuesday. This announcement led to a remarkable 9.7% increase in Tokyo shares, peaking at ¥2,782.
The strategic move has propelled Mitsubishi’s shares to climb by 23.5% year-to-date.
Termed as a “monster buyback” that caught many market participants off guard, Jefferies analyst Thanh Ha Pham highlighted that the company possesses an additional ¥500 billion surplus cash, which could be returned to shareholders. Pham emphasized that if Mitsubishi fails to identify appealing acquisition opportunities, management is likely to channel the excess cash back to shareholders to maintain and enhance capital efficiency, ultimately targeting a double-digit return on equity.
Increasing Pressure on Companies for Enhanced Valuations
Activist investors are exerting mounting pressure on companies to enhance their market valuations, foster better governance, and initiate share buybacks.
The Tokyo Stock Exchange has urged companies to address low valuations through a “name and shame” list, spotlighting those resistant to reform.
This pressure is yielding tangible outcomes. Listed Japanese companies announced a record ¥9.9 trillion of combined share buybacks in 2023, according to an analysis conducted by Jefferies.
Mitsubishi’s share price surge also benefits Buffett’s Berkshire Hathaway, which has made significant investments in Japan’s top five trading houses — century-old commodities specialists now increasingly operating as global venture capital and private equity entities.
Buffett’s initial investment in Mitsui, Mitsubishi, Sumitomo, Marubeni, and Itochu in 2020 has resulted in increased stakes, with Berkshire now holding approximately 8% in each of them.
Since Berkshire Hathaway’s investment, Mitsubishi’s shares have nearly tripled in value.
$3.3 Billion Tender Offer
Additionally, Mitsubishi disclosed on Tuesday that it had agreed to launch a $3.3 billion tender offer with mobile carrier KDDI for convenience store chain Lawson.
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Anticipating deepening labor shortages to alter shopping patterns in the nation, the trading house, which already owns half of Lawson, is making a strategic move.
Lawson, Japan’s third-largest convenience store chain by the number of shops, has accepted the offer.
Key Insights
Warren Buffett typically invests in companies with robust business models that are undervalued. In essence, he targets companies that appear inexpensive.
Japan’s five major trading houses — Mitsubishi Corp, Mitsui & Co, Sumitomo, Itochu, and Marubeni — align with Buffett’s criteria, being undervalued due to the impact of the global pandemic and commodity price downturn earlier this year.
Buffett has disclosed a $6.3 billion investment in this quintet and signaled his intention to increase it.
While Berkshire’s foray into Japan may not significantly impact its $150 billion cash reserve and overall equity portfolio, which is predominantly led by a substantial stake in Apple, it sends a compelling message.
In an era where valuations of US technology companies are soaring, and bank stocks, another Buffett favorite, are grappling with escalating loan losses and historically low interest rates, investors are navigating a more volatile, disjointed, and inflationary future
